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Morgan Stanley to Buy E-Trade for $13B
- xxpor 7y agoAs soon as everyone started going to $0 commissions overnight I feel like consolidation was inevitable.
- sixstringtheory 7y agoMy thought as well. Also just got an email yesterday that my investments at USAA are moving to Schwab.
- ethbro 7y agoWith the move to $0 order fees for online brokerages, not surprised to see more tie-ups. Even running the business at break-even, MS gets to market their other products to all E-Trade's customers. That said, what's the current economic model for independent online brokerages? Sell order flow? Rate arbitrage off uninvested assets?
- blahbhthrow3748 7y agoMatt Levine has said the majority of online brokerage revenue is from collecting interest on cash balances.
- markvdb 7y agoThere was a somewhat revealing interview by the people behind Flatex, a big discount broker from Germany [0]. Dutch source, do use a translator https://www.tijd.be/markten-live/nieuws/algemeen/nieuwe-eigenaar-degiro-de-prijzen-voor-onlinebeleggen-gaan-omhoog/10208604.html https://www.tijd.be/markten-live/nieuws/algemeen/nieuwe-eige... "Is it easier for a pan European company to keep big US competition like Robin Hood and Ameritrade out? Niehage: 'The companies you name are very badly positioned for Europe. Their economic model is based on two pillars. Firstly, they want to offer everything for free. But if you offer all services for free, you have to earn money with the capital in the investors' accounts. That is possible in the US, where you can still get 2% of interest. In Europe, with zero interest rates, that's very different.' And the second pillar of their economic model? Niehage: 'That's the high frequency traders. As far as I know, Robin Hood sells its customer orders to this kind of parties. They are prepared to pay good money for that. According to the European MiFID II-regulation, that is illegal. Those two examples show that the US and EU markets are totally different. That's why American brokers have difficulties breaking into the EU market.' "
- rwmj 7y ago> 'That's the high frequency traders. As far as I know, Robin Hood sells its customer orders to this kind of parties. Is this front running (and hence illegal), or do they mean to say customer trades, or something else?
- auntienomen 7y agoThey sell the order flow. It's not front running.
- hcknwscommenter 7y agoThe entity selling the order flow is not front-running, but the entity buying the order flow (market maker, HF trading firm) is basically front-running. It's just that the front running is done in a way to actually lower prices or increase liquidity for the underlying trades in the order flow being sold.
- sseveran 7y agoIt's not basically front running. Front running is specifically when a broker gets your order and sits on it until either they or another client can trade in front of it before the market moves. Market makers want to interact with retail orders since they typically don't have size and in aggregate are either non-directional or predictably directional. This reduces the market makers risk of adverse selection.
- hcknwscommenter 7y agoIf you want to define front-running that way, then I agree HFTs don't front-run. But they do step in between buyers and sellers. If you want to call that something else, shrug.
- sseveran 7y agoStepping in between buyers and sellers is called market making. They smooth supply and demand across time. Also I don't define front running that way, FINRA does. https://www.finra.org/rules-guidance/rulebooks/finra-rules/5270?element_id=10860&rbid=2403 https://www.finra.org/rules-guidance/rulebooks/finra-rules/5...
- lifeslogit 7y agoSome other ways Brokers make money: Market Making operations that leverage the same infrastructure and market position, Interest on Margin, Stock Loan/Borrow activity with other Brokers, and Market Data Access. Still with these items, I agree that a move to 0 commission trading will cause a shift.
- thebiglebrewski 7y agoAw man, I just got moved from Capital One 360 Investing to E-Trade. Now I'll have to move to Morgan Stanley? Any way to just transfer my sh*t from E-Trade to Robinhood without just selling and re-buying, incurring a change in tax status? Seems Robinhood has unfortunately sunset that option...
- homero 7y agoTry Firstrade
- lettergram 7y agoYou can transfer stocks, Robinhood implemented that a 12-18 months ago (and E*TRADE has/had it)
- thebiglebrewski 7y agohttps://robinhood.com/us/en/support/articles/360001474726/transfer-stocks-into-your-robinhood-account/ https://robinhood.com/us/en/support/articles/360001474726/tr...
- lettergram 7y agoLol well, that’s unfortunate- how long has that been and when was that posted?
- seanhunter 7y agoI would think an ACATS transfer should be available for any registered US broker. That would not involve selling and re-buying.
- thebiglebrewski 7y agohttps://robinhood.com/us/en/support/articles/360001474726/transfer-stocks-into-your-robinhood-account/ https://robinhood.com/us/en/support/articles/360001474726/tr...
- 7y ago
- omarhaneef 7y agoI rely on Matt Levine to explain, more clearly than I could, how brokerages make money ("The Trades Will Be Free Now"): https://www.bloomberg.com/opinion/articles/2019-10-02/the-trades-will-be-free-now https://www.bloomberg.com/opinion/articles/2019-10-02/the-tr... Let me highlight a key passage: "Even this understates the change, because the actual way that stock brokers work today is that you keep some cash in your brokerage account to fund potential trades, and the broker earns interest on that cash and pays you less than it earns, and all the trading stuff is almost irrelevant. ... Commissions are way down there; in 2018, they represented a bit less than 7% of Schwab’s net revenue." I don't think this is about consolidation in the brokerage space because of zero fees. I think this is about investment banks getting into the retail space (see Goldman's Apple card). Once again, I rely on Matt Levine to explain it ("Goldman Has Some Boring Plans"): https://www.bloomberg.com/opinion/articles/2020-01-29/goldman-has-some-boring-plans https://www.bloomberg.com/opinion/articles/2020-01-29/goldma... The whole thing is worth a read, but here is one key paragraph: "One way to interpret this is that Goldman has embarked on a quest to be boring. This interpretation seems plainly correct. The old Goldman approach—making a lot of money on lumpy investment-banking fees, risky balance-sheet-intensive trading, and both-lumpy-and-risky principal investing—is disfavored in modern banking. It is disfavored by regulation (the Volcker Rule, capital requirements) and by market conditions, but it is also particularly disfavored by Goldman’s own investors, who want reliable recurring revenues." Edit: I should add this interpretation is also the one offered by the author of the NY times article, although the author also claims that slashed fees played a role: "It continues Morgan Stanley’s strategy of increasingly focusing on asset management rather than investment banking and high-stakes trading, betting on steady fees over bigger paydays and bigger risks."
- frockington1 7y agoI agree with the premise that GS is trying to break into more retail and boring banking. In my opinion they may have already missed the opportunity. JPM/Chase and Bank of America/Merril Lynch figured out this business model over a decade ago and have been building customer bases. Last earnings showed the Apple card to be a disappointment
- 7y ago
- mxschumacher 7y agoGood time to revisit patio11's excellent article on discount brokerages: https://www.kalzumeus.com/2019/6/26/how-brokerages-make-money/ https://www.kalzumeus.com/2019/6/26/how-brokerages-make-mone...
- petilon 7y agoIf you're considering using E-Trade you may want to consider that E-Trade does not take responsibility if they are hacked. They group cybersecurity events and software malfunction under "Force Majeure" events ("acts of God"). That means if your retirement savings vanish because they are hacked you're out of luck. See https://content.etrade.com/etrade/estation/pdf/10118customeragreement.pdf https://content.etrade.com/etrade/estation/pdf/10118customer... Fidelity and Vanguard don't have such clauses. Hope Morgan Stanley fixes this.
- jzwinck 7y agoDo you believe the usual insurance programmes will not help in the event of a hack? https://us.etrade.com/l/f/asset-protection https://us.etrade.com/l/f/asset-protection Basically everyone has $500k insured in their trading account. Are you concerned about people with more than that, or concerned that it wouldn't cover hacking?
- hedora 7y agoFDIC payouts are extremely rare. As far as I know, it only kicks in if the entire bank fails. I don’t think it covers fraud. Having said that, I’d be surprised if E Trade were not legally required to cover losses in the event of account break ins, regardless of what their customer agreement says.
- deleted 7y ago[deleted]
- xur17 7y agoIt would not be absurd for normal people to have > $500k in their retirement accounts, especially if they are close to retirement.
- enoughalready 7y agoI am guessing you mean 500k cash. Regardless, I'm not sure if your point holds. If I have $1m in stocks, and my account is hacked, the stocks are sold, and the money funneled out, am I protected?
- OJFord 7y ago$13B is a more than 96% discount on the stated $360B asset value, what am I missing? Unless it means (or is including) assets held for clients in nominee accounts?
- rwc 7y agoCorrect. They bought the business and future cash flows but the AUM are not included in the valuation beyond the extent to their contribution to cash flow.
- OJFord 7y agoSorry, I'm still confused, you're saying the $360B 'assets' figure is assets under management? Seems an odd way of describing it, so I didn't even think of it at first, but I can't see how else 'assets' would be so much larger than the valuation.
- icedchai 7y agoYes. Every article I've seen mentions "retail client assets" for the $360B.
- anthonypasq 7y agoif you counted Assets under Management, Blackrock would have a valuation of 7 trillion. That clearly isnt the case. They dont actually own the assets
- cwwc 7y agoAlso - likely a move to gain access to large 'dark pools' of mom&pop trades (orders) so that they aren't front run on institutional block trades & et cetera.
- dclusin 7y agoI wonder if the movement to zero transaction fees will facilitate the development and greater adoption of software written to implement passive investment strategies like indexing. Fees for funds that do passive strategies like indexing are already incredibly low, but there's no reason they can't be zero. It ought to be pretty straightforward to implement this with some sanely written software connecting to your brokerage of choice. You may lose out on revenue streams like securities lending, but it's probably not that much anyway. Anyone have any experience with this?
- anonu 7y agoMy prediction: JPM will make a bid for RobinHood.
- tptacek 7y agoWhy? What edge does RobinHood have that JPM needs? Would they just be buying the meme-stock customer base? The "free trade" feature is a marketing decision, not a technological breakthrough.
- anonu 7y agoSame reason Schwab bought td and Ms did this deal today... Expand out their younger millennial base and sell them more products. Jpm has Chase as it's retail platform. But it lags behind in trading features. Why not?
- tptacek 7y agoAmeritrade and Schwab are almost the same age and have similar customer bases. Schwab has superior economies of scale and can make more money per customer than Ameritrade. Schwab's move to no-fee trading put Ameritrade in distress (Ameritrade was more dependent on commissions than Schwab), which created the buying opportunity. Which of those dynamics exists for Robinhood?